Claims Dashboard for US Life Insurance Industry

Claims Dashboard for US Insurance Industry

Submitted By
Shweta Jain Sivasubramanian V.N.K

July 5th, 2010

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Claims Dashboard for US Life Insurance Industry

Contents
1. 2. 3. 4. 5. 6. 7. 7.1. 7.2. 7.3. 7.4. 8. 9. 10. 11. Abstract ........................................................................................................................................... 3 Introduction ..................................................................................................................................... 3 What is Claims Management? .......................................................................................................... 4 Challenges in Claims Management .................................................................................................. 5 Role of Information Technology System .......................................................................................... 6 Business Benefits of Claims Dashboard ........................................................................................... 7 Claims Dashboard............................................................................................................................ 7 Financial Perspective.................................................................................................................... 7 Claim Processing Perspective ....................................................................................................... 8 Operational Perspective............................................................................................................... 9 Efficiency Perspective ................................................................................................................ 10 System Architecture....................................................................................................................... 11 Conclusion .................................................................................................................................... 12 References ................................................................................................................................. 12 Contacts ..................................................................................................................................... 12

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Claims Dashboard for US Life Insurance Industry

1. Abstract
Products of Insurance industry have become highly commoditized. Corporate clients and individuals shop around to get the best deals from the insurance companies which have lead to products losing the differentiating factor. The customer service of the insurance companies has become the key differentiator in influencing the customer decision. Claims Management, is one of the critical business process that affects the customer satisfaction. This makes imperative for the insurance companies to have up to date IT systems, tools & processes in place to provide best customer service possible. This POV aims to provide the decision makers/senior managers in the insurance company with tools to improve the efficiency of the Claims Management in the form of Claims Dashboard. Insurance company need to identify the reasons for increasing administrative and processing cost, high expense ratio without spending much time and resources. Manually embarking on an information mining exercise of such a nature would entail significant effort and cost, making it prohibitive. Thus a Claims Performance Dashboard is the need of the hour. It would significantly lower the administrative burden, reduces cost, improve customer satisfaction and help senior management in better decision making.

2. Introduction
The life insurance business line in the insurance sector is poised to growth with a projected CAGR of 3% for the period 2008-13 as per the research report of Data Monitor.

Source: DataMonitor

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Claims Dashboard for US Life Insurance Industry Demographic change of the US shows that there has been 30% increase in the baby boomers population from 2000 to 2010 i.e. those who are in the age of 45 to 64. With the raising pressure on operational efficiency and economics of scale, consolidation in the industry has been a continuing trend and a fair amount of M&A activity is expected to happen in the industry. The above reasons along with the mandate to provide best of customer experience, the IT systems have to flexible and adaptable enough to accommodate new demands and seamlessly integrate with newly acquired systems. Life insurance industry has realized that Claims Management is the most challenging of all the business processes involved. Currently the claim process is typically time consuming and labor intensive involving multiple systems, distributed departments and outdated technologies. This results in inefficient and inconsistent processes, leading to slow turnaround time which directly results into low customer satisfaction. According to recent analyst reports, for every dollar collected as premium, insurers spend 13 cent on claims expenses and 61 cents as claim payout. Thus controlling cost, increasing efficiency and improving customer satisfaction plays important role in companys profitability. Insurers have realized that having a Claims Handling System alone will not solve all the problems. To improve the claims process efficiency, reduce cost and improve customer satisfaction, claims system data needs to be tapped and converted to intelligent information. This will help in speeding the process by identifying bottlenecks, optimizing resources and detecting frauds.

3. What is Claims Management?

Claims management involves a broad set of coordinated processes that start with the filing of a claim which is then skillfully managed by adjudicators orchestrating a series of activities with internal and external participants like family members, employers, third parties, witnesses, doctors, private investigators and others, in order to gather the necessary information for their investigations. Claims management operates in a collaborative environment with the claims adjudicator. While issuing a life insurance policy, a life insurance company promises to pay a specified amount if the insured person dies while the policy is in force. At the insured's death, the claimant files a claim request for payment of insurance policy benefits following the occurrence of a covered loss. The insurer carries out its promise by evaluating the claim and, when appropriate, paying the proceeds to the beneficiarythe person or party the owner of the life insurance policy names to receive the policy benefit. The whole process is termed as Claims Management.

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Claims Dashboard for US Life Insurance Industry Claim department is responsible for evaluating and paying claims for policy proceeds. It reviews all relevant information about each claim, determines whether policy proceeds are payable and determines the amount of the benefit payable and the correct recipient of the proceeds. Below diagram explains the high level Claims Process and Claims Management.

Source: Software AG - Process Framework

4. Challenges in Claims Management

Increasing claims fraud: There is rise in fraud claims and fraudulent activities are not identified before a claim is paid. Inaccurate calculation of loss reserves: Loss reserves are either too low or too high that result in inadequate pricing and puts the company at a competitive disadvantage. Unstructured data: Up to 75 percent of claims data is unstructured, resulting in timeconsuming, manual investigations.

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Claims Dashboard for US Life Insurance Industry Limited resources: A shortage of expert adjusters and cost rationalization issues have resulted in overworked and understaffed claims departments. Increasing legal costs: Claims settlement costs are typically doubled when an attorney is involved, and these costs are a growing threat to profitability. Inefficient claims prioritization: Its difficult to determine how to effectively prioritize claims so that the ones requiring immediate attention can get it. Increasing process inefficiencies: Process inefficiencies have a major impact on customer retention, which is affected by an insurance companys ability to process and settle claims in a timely manner.

5. Role of Information Technology System

With the use of I.T. systems like Claims Dashboard an insurance company can obtain real-time and accurate data, increase connectivity and streamline claims processes across multiple operations. The benefits are lower processing and administrative cost, reduced payouts, decrease in processing time and better customer satisfaction. All these are crucial factors for the success of an insurance company. Below diagram illustrates the drivers for implementing Claims Dashboard.

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Claims Dashboard for US Life Insurance Industry

6. Business Benefits of Claims Dashboard

Measure and improve Claims performance: Improve Claim-handling operational efficiency, contain losses and Loss Adjustment Expenses and improve customer satisfaction. Measures Multi-dimensional perspective of the key performance. Cost Avoidance and Reduction: Greater financial efficiency, less claims leakage, reduced cost of claims and errors. Contains industry standard Key Performance Indicators and Metrics to Plan-Track Monitor performance efficiency Analysis of the KPIs individually against the targets set for each KPI in dimensions like duration, line of business, product type, claim type and geography Greater Customer Satisfaction Accurate and Real time Information: Reduce fraud claims Help Senior Management in better decision making

7. Claims Dashboard
Claims Dashboard is a solution accelerator to address the information and analytics needs of Life insurance claims processing. It is equipped with standard set of Key Performance Indicator (KPIs) and measures capturing the essence of claims management system. The Dashboard provides real time analysis of critical performance measures. KPIs are categorized into four major perspective - financial perspective, claim processing perspective, operational perspective and efficiency perspective. Each perspective address different business needs and reflects trend related to specific area. Individual perspective is discussed in detail in following section.

7.1.

Financial Perspective

The KPIs under this financial perspective category provides the management with the analysis of the financials involved in claims management like cost, payout over the years, region and products. This Analysis will help the management to take efficient decisions there by helping them to reduce the cost and improve the profitability of the business unit
Absolute & Percentage change in Average Claim Payment: This KPI is used to analyze the

trend of the average claim payment and track down if there is any significant deviation in a particular period or region. This knowledge thereafter is used by the management to take proactive decisions/ Corrective measures to bring down the average claim payment. Information about the average claim payment across the products will help in analyzing the performance of the product category. This KPI gives a picture of the average claims payment and it percentage increase over the years. Further drilling down, would give the
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Claims Dashboard for US Life Insurance Industry information about the quarterly , product wise & region wise distribution of the average claim payment, Legal Cost incurred as percentage of Total Cost: Legal cost is always seen as an overhead cost in the Claims processing as it can be easily reduced/avoided by having effective system in place. This KPI gives information on absolute legal cost and percentage increase as component of total cost over the years, on further drilling down quarterly information is also delivered, which will helps the management to track the trend and abnormalities in the legal cost incurred. This knowledge thereafter is used to bring in focused measures to reduce the legal cost component in the total cost.

Absolute & Percentage change in costs on Claims Processing: Claim processing cost is total all the costs incurred in the processing the claim and this is next biggest outflow of cash next to claim payout. Claim payout being an obligatory for the carriers, controlling the claims processing cost is imperative to improve the profitability of the carrier. This KPI gives a picture of the absolute claims processing cost and its percentage change over the years. This information is very much essential for the management to come up with active measures to reduce the cost incurred.

Absolute & Percentage change in Expense Payment per case: Expenses incurred while processing claims gives the picture of how efficient is the claim process.

7.2.

Claim Processing Perspective

Claim processing perspective includes KPIs that judges the claim processing activities on various grounds, each KPI purpose is explained in detail as mentioned below Percentage of records properly documented: At time of filling claims there needs to be documents attached along with claim. This KPI identifies the percentage of claims properly documented by each product type like term life insurance, whole life insurance and annuity. We need to track the documentation status of claims for different product type as each product may have different department and different set of requirements in terms of documentation. These figures will help management to identify the documentation procedures and standards of which product line needs to be looked into for improvements. Average Claim settlement time of settled claims: Claim settlement time is the key driver for claims management process. Quick claims settlement as well as high-quality

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Claims Dashboard for US Life Insurance Industry and punctual information provided to the policyholder/claimant/beneficiary are key competition features for insurance companies. It directly impacts the customer satisfaction. Its necessary for insurance companies to trace their performance in the timely settlement of claims as well as in trends in settlements. This KPI tracks the yearly and quarterly claim settlement type for different claim types like death claim, maturity claim and rider claim. Trend analysis will help management to track the effectiveness of claim process and find the effect of any changes done in process. Average number of claims managed per operator: Due to the shortage of resources, it very important to track the workload of operator/adjustor. This KPI will give yearly and quarterly average number of claim files managed by operator and help the managers to find weather the operators are overloaded by comparing to industry benchmark. Percentage increase in claims managed by operator: This KPI will give yearly and quarterly trend of percentage increase in claim files managed by operator. In case there is sharp change in graph management needs to look into the reasons and take hiring/lay off decisions depending upon the change and market conditions. Loss adjustment expense ratio: Loss adjustment expense ratio is of great importance to the insurance company, it tells the story about the health of the company. This KPI gives yearly and quarterly figures of loss adjustment ratio. It will help management to compare the rate of change of total expense with respect to premium earned. Lesser the ratio better is the profitability of the company. Claims started in given year and closed till now (consider claim initiation date): This KPI shows how many claims are closed (settled or rejected) from the claims filled in a given year or quarter. The percentage of claims closed to total claims filled gives the closure ratio. Higher the closure ratio better is the claim process. Thus the trend helps manager to analyze the processes and scope of process improvement. Number of claims closed in a given year (consider claim settlement date): This KPI gives the number of claims closed in a given year or quarter irrespective of when it is filled.

7.3.

Operational Perspective

This category of the KPIs gives the picture of how efficiently the claims management process works and to track down the deviations and areas of concern to the management to take efficient decisions. Percentage of Time Overshoot by sub processes: The speed of execution of the claims processing has a huge effect on the customer satisfaction level. Most of the claims

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Claims Dashboard for US Life Insurance Industry processing system are considered to be inefficient because of the delay in processing of claims. This KPI gives a picture of the time overshoot that is percentage of the time sub process took over its expected average processing time. This helps the management in identifying which sub process in the claims processing system is causing the bottleneck/ delay in processing the claims. This helps the management to bring In corrective measures to reduce the claims processing time Number of claims per product: The effectiveness of the product design is measured by the number of claims made under that product. This KPI will give information about how effective the product and thereby helps the management to take strategic decisions pertaining to the product mix of the carrier.

7.4.

Efficiency Perspective

Efficiency perspective helps management in judging the claim management processes efficiency. It can consists of KPIs as mentioned below Percentage decrease in customer complaints: Customer satisfaction is key differentiator for any insurance company. Claim is seen as a make-or-break touch point: if a customer is dissatisfied with the way an insurer handles a claim, they are more likely to cancel their policy and look for coverage elsewhere. Thus revenue retention and growth of company is directly dependent on satisfaction level which makes this KPI important from efficiency perspective of claims process seen via eyes of customer. Number of litigation per open files: The cost of claim can increase manifold time when litigation is filled and attorney is involved, this is a major threat of insurance company profitability. This KPI address the need of identifying the trend and actual number of litigation per claim filed yearly or quarterly. Percentage decrease in fraudulent activities: This KPI address the major problem of increasing number of fraud claims. It will help manager to know the number of fraud claims, percentage with respect to total claims and trend analysis year and quarter wise. Thus comparing with industry standard can comment on efficiency of claim fraud detection department efficiency. Percentage reduction in average claim processing time: As discussed before claim processing time is very important to both customer and insurer. It directly reflects the efficiency of the process followed and customer service. So by comparing the percentage reduction of claim processing time (year/quarter wise) managers can study the impact of process change or find the scope of improvements.

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Claims Dashboard for US Life Insurance Industry All the above KPIs help management to identify the current status of claim process and see the trend analysis compared to previous years/quarters to find the inefficiencies and scope of improvement.

8. System Architecture
Claims management is highly inefficient at most insurance, work processes are fragmented and paper intensive, systems are numerous and disjointed, and many steps are performed manually. An efficient I.T. architecture would replace these tedious processes with more efficient I.T. system and help the company to 1. 2. 3. 4. Minimize loss costs Reduce processing costs Improve customer service Control and improve decision-making.

An efficient I.T. Architecture will help the organization to build a robust, scalable data warehouse which would not only solve the business questions faced by the organization but also has the flexibility to adapt to new changes in the business process. The Components of the IT Architecture: 1. Source systems 2. ETL Layer 3. Datamart layer 4. Reporting layer

SOURCE SYSTEM

ETL LAYER
DATA CLEASING

DATAMART LAYER

REPORTING LAYER

CRM System

DATA STAGING TRANSFORMATION LOADING

Claims

CLAIMS MANGEMENT REPORTS

Financial System

DATA WAREHOUSE
PREMIUM

. .
Other

. .

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Claims Dashboard for US Life Insurance Industry

9. Conclusion
With more and more value being added to the services that are offered by the insurance companies, making strategic investment in I.T. as business enabler of these services has become imperative. Claims management being one of the critical systems which influences the brand perception of the carrier, Management should always look out for best industry practice and implement to stay competitive. To make this possible, the supporting systems should be scalable and flexible to accommodate new changes in the process and stay ahead of the curve.

10. References

OEDC Guidelines for Good Practices for Insurance Claim Management Software AG: Process Framework Claims Management Data Monitor: Life Insurance in United States Reference Code: 0072-0976, Nov 2009 Standard & Poors: Industry Surveys Insurance: Life and Health April 29, 2010 Forrester- Industry Essential: The US Insurance Market

11. Contacts
Shweta Jain shwjain@deloitte.com Sivasubramanian V.N.K svnk@deloitte.com

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